Customer Reviews

License to Steal : The Secret World of Wall Street and the Systematic Plundering of the American Investor

5 star:		(16)
4 star:		(6)
3 star:		(4)
2 star:		(4)
1 star:		(2)

 

 

No wonder the reviewers who are brokers didn't like this book. True, the bad guys in the book are only a small percentage of the business, but the book also tells a lot about the basic conflict of interest between all brokers and clients. Like the bit about hidden commissions. I'd never known about that, but now it makes sense. My broker, back when I had a broker, never told me about that. They just want to make money for themselves. If they make money for you, fine, but they look out for No. 1.

As a former floor trader (Pacific Coast Stock Exchange) and OTC trader (many years ago), I know that the sort of things written about in this book are true. Shlock brokerage houses across the nation, Florida in particular, are still filching and bleeding their clients without any conscience whatsoever. The only way to be safe today is online investing with realtime service. Even the "finest" names on the street are guilty as hell.

I loved this book!

Reading this book was captavating, especially since I am heavily in the market. Several of my friends have used brokers over the past five years, and without exception it was a negative (in hindsight) experience. This book shows why. Their stories struck me deeply, and I always warned others of the dangers of using these financial middle men. If you have a broker or are thinking of getting one read this book first! PLEASE! Very entertaining reading too. You won't want to put it down and can get through it in 2-3 days easy.

Another tale of dirty dealing on Wall Street, both a confessional and an expose. The author starts his career as a cold caller at a brokerage house he code names "Harvard." Harvard is not the chop-shop type of operation we see in the movie "Boiler Room," but a well respected Wall Street firm. Nevertheless Harvard comes off looking a little like a boiler room. According to the author here's how it works. After a cold caller hooks a potential client, a qualifier makes sure he really has money and then hands him off to a licensed house broker. The prime directive for the broker is to maximize commissions. You might think commissions are necessarily small in this era of negotiated rates, but alas this is not so. When Harvard is the market maker for the stock it gets to keep the bid-ask spread in addition to its published commission. The bid-ask spread is similar to the difference between wholesale and retail. Normally the spread is small, say 12.5 cents per share. For a high capitalization blue chip selling at $80 per share this hidden commission is trivial. Not so for the so-called "microcap" issues a Harvard broker will recommend. The spread might be 50 cents on a stock selling at $8 a share. That's more than 6% added to the normal 3% commission making the total commission on a buy-sell round trip nearly 20%. A round trip on $50,000 of a microcap will generate $10,000 for the house and the broker gets about half of that. Take a lot of clients on a lot of round trips and you get one rich broker. This is the basic theme of the book. After Harvard he moves to a less respected house he calls "Junior College," with an inner ring of brokers known as the "Dirty Dozen." The Dirty Dozen not only stretch the law they break it out right by stock price manipulation and other dirty tricks. Finally he quits Wall Street after burning out from stress and guilt. The author provides little advice to investors other than hang up on cold callers and don't trust your broker's advice on what stock to buy because he has an inherent conflict of interest. No discussion on using limit orders, index funds, independent financial advisors. He says the clients don't seem to care. I don't know if I believe that.

I read this eye-opening book from start to finish without stopping! I've had only one experience with a stock brokerage firm; this book confirmed my suspicions and helped me understand why some things happened the way they did...especially the chapter titled "If A Woman Answers, Hang Up." Give this book as a present to any of your friends or family who still think that a stock broker's job is to make THEM rich.

This book is fantastic. Although I thought my broker was above Wall Street this book clearly points out that the most important person to your broker is your broker! Highly recomended!

Every once in a while, one of the rapacious cretins inhabiting the brokerage houses of Wall Street has a twinge of conscience and a need to confess, and so he writes a mea culpa to cleanse his soul. The anonymous author, now a modest financial advisor in a small town, manages to look like a hero with a human heart while exposing the compromised nature of the securities business. If you have any illusions left about the goodness of humanity, don't read this book. You'll lose them. Part confessional, part cautionary tale, this first person narrative makes Wall Street brokers look like the dregs of humanity. If this sensational and rather novelistic tale is to be believed (and it is) then even lawyers and used car salesman tell fewer lies and steal less than Wall Street brokers.

License to Steal is the latest in a genre that goes back to at least the robber-baron days of the 19th century and probably to the earliest days of capitalism in renaissance Italy. One of my favorites is the very entertaining Where Are the Customers' Yachts? (1940) by Fred Schwed Jr. In that little book, studded with New Yorker cartoons, an innocent asks a broker the title question and is told, naive fool that he is, that the customers don't have any yachts. Only brokers and officers of the brokerage firm have yachts. According to the authors, today's breed of white collar crook doesn't spend his ill-gotten lucre on anything so romantic as a yacht, preferring German motor cars, cocaine and Cuban cigars, floozies, French champagne and blackjack. The degenerate get more degenerate it would appear.

I had a broker myself, back in the days of my naiveté, and I recall she told me one day that she was hoping the market would plunge a hundred points (that was in the days when a hundred-point swing meant something). I was momentarily stunned since I was a client with some serious money in those stocks that she was hoping would plunge. But she had forgotten herself for the moment and was talking to me as she would to one of her fellow brokers. THEY wanted a plunge so they could stir up some action and make some money on commissions. And therein lies what the authors of License to Steal call on page 265 the "basic conflict of interest" in "the securities business," namely that what is good for the broker is to move "clients in and out of positions to generate commissions" (and to take advantage of the spread), while what is good for clients is just the opposite, to pay a minimum for commissions and to get trimmed by the spread as seldom as possible. This conflict is still with us although, by trading over the Net without a broker, the commissions are much cheaper and the danger of getting trimmed by in-house spreads is lessen considerably. Nonetheless, the industry as a whole still has a vested interest in churning the accounts of investors. We see this in the frequent upgrades and downgrades issued by brokerage firms, recommendations that encourage a lot of buying and selling. The only way this conflict is going to be eliminated is for brokers to gain only when their clients gain. I wouldn't hold my breath for that reform however, since it would have the effect of sending the vast majority of brokers back to telemarketing or to selling aluminum sliding.

If you like License to Steal, and I think you will, since it is very hard to put down with the lurid picture of piggy greed and human stupidity it paints, you will also like F.I.A.S.C.O.: Blood in the Water on Wall Street (1997) by Frank Partnoy. Partnoy's book is about derivatives sales people who are as morally degenerate as the characters in License to Steal. The only substantive difference in the books is that Partnoy's book is not anonymous and neither are the firms he worked for.

Reading this book was like taking a step back in time. I worked as a broker right out of college for a company that sold microcap stocks and is since defunct. I can say without a doubt that everything in this book is the absolute truth. From the hidden commissions to the trips to Atlantic City it is all true. Recently I was surfing the NASD regulatory website and found a lot of my old managers had been listed, fined and expunged from the NASD for life for the things that they did. From lying, to churning accounts, to buying stocks without authorization. Next time your phone rings and someone is pitching a stock to you beware. The only person that will make money is the person making the call. This was a fascinating real life account. If you want to be financially secure get a good financial planner and get rich the slow way. Compound interest over time.

Having worked on Wall Street for many years, I've seen all these practices too often. Because of the NASD dragging their feet, unscrupulous brokers such as these are all to common on Wall Street. This was the first (and only) book that I've ever read in one day. It's up there with Den of Thieves and Liars Poker as masterpieces of modern Wall Street literature. If you have any interest in true stories of coruption on a grand scale, you've got a winner with License to Steal!

Being in the business for over 20 years I think this book was long over due. Clients just don't know. I could probably write a better account but as Chairman of a Firm I won't. Many managers could also care less about the client's it's not only the broker fault. The NASD has a big role they are to slow to put these type of brokers & firms out of business. Why not have a contest to see how much money we make the client. I must admit that 11 of my 20 years were at Lehman Brothers as a Million Dollar Producer and the most famous books were the rebuttal books and the book we sent to clients called, The Money Magicians (Chapter 7 Lehman). At Lehman Brothers we had professional, writing stock presentations for us. We even had special meeting about what stocks we were going to pitch that day and how each and every manager was going to allocate the stock and what the commisions were. At 55 Water Street Lehman Brokers parked more stock in one day then Kinney Parking lots Parked cars in their garages in New York City on any given day. The auther is also talking about NET TRADES the motto on Wall Street was & is "if you can't net it forget it". JUST REMEMBER THIS "On wall Street 3 people make money: A-The Client B-The Brokerage House C-The Broker And 2(B,C) out 3 is not bad". Buy the book !